Labour 'ignored warnings over Britain's unbalanced economy'

Claims in Labour's last election manifesto the party would take the country "forward to increased prosperity, not back to boom and bust" have been branded "total hubris" by business leaders in the region in the wake of the deep recession.

And while they have backed Government intervention to rescue the banks, they warn firms and ordinary people will be left with bigger tax bills for many years to come to repair the damage caused by allowing the country to live beyond its means.

In the final part of a series assessing Labour's record against the promises it made in its 2005 manifesto, the party's economic performance gets a mixed record from business experts.

If an election is not held until May, still considered the most likely date, the party also stands to tear up one of its main manifesto pledges, not to raise the top rate of income tax. A 50p rate on people earning 150,000 is due to take effect in April to help tackle the deficit, with Labour insisting it has made a "fair judgment" on tax to repair the public finances.

Nick Pontone, policy director of Yorkshire and Humber Chambers of Commerce, said Labour deserved its share of credit for 15 years of unbroken economic growth, and "decisive" action to save banks which "pulled the economy back from the brink of catastrophe".

"However, any objective assessment of their claim to end 'boom and bust' now seems total hubris and is a gift their political opponents will want to exploit at the election," he said.

He said it would not be fair to be critical over causation of the recession simply in hindsight but said "many businesses" warned in 2005 the country's economy was dangerously unbalanced.

"A more balanced strategy was needed but not pursued and has left the economy more vulnerable to the deeply damaging recession we have experienced.

"It is the management of the public finances where the Government has been most culpable. Despite the manifesto containing numerous references to low debt, the public finances went into deficit as early as 2002. The evidence clearly shows the country was living beyond its means and the current annual deficit of 175bn is likely to leave every business with a higher tax bill for many years to come."

The manifesto, written at a time when the economy was growing rapidly, pledges "full employment in every region and nation" in 2010, yet the impact of the recession has seen unemployment hit 2.49m.

Mr Pontone says the "laudable aspiration" is "fatally undermined" because the region's employment rate started falling in 2005, and warns of growing unemployment from the public sector when cuts kick in next year.

Despite a manifesto pledge to "borrow only to invest and keep net debt at a stable and prudent level", he claims businesses feel "the distinction between spending and investment has been totally confused in recent years" with too much money "wasted on unreformed public services".

Andrew Palmer, Confederation of British Industry (CBI) director for Yorkshire and the Humber, also warns it will be "many years before any government can make such a pledge" with debt due to soar over the next few years and a budget deficit of 178bn this year.

Regardless of Labour's promise five years ago to cut waste, "in today's climate more cuts in public services are necessary to restore public finances and help balance the budget", he said.

A Labour spokesman said: "This is a global financial crisis and a global recession – the worst in 60 years. No country could have avoided its effects. But by paying down debt in the good times, we were in a stronger position when the financial crisis began – in fact Britain's public debt was the second lowest in the G7.

"That helped us take the action we have done to help young people, families and businesses through the recession. We made the right choices."